What's In Store For Congress' Next Highway Bill And Which Companies May Benefit

By Morningstar: By Min Tang-Varner
As construction-related companies wrap up an eventful summer season interrupted by hurricanes, flooding, drought, fire, excessive heat, and other natural disasters, we think the modest demand gains driven by the traditional seasonal uptick may not be enough to alleviate the underlying weak work flows these companies are facing. Overcapacity remains stubbornly high, and we still anticipate some further weakness in the near term. The tepid construction environment has led to a record level of unemployment in the industry and unprecedented belt-tightening across the board during the past couple of years. Although most of the industrial sector in the U.S. economy enjoyed at least a couple quarters of upbeat earnings and expanding margins, the engineering and construction industry and building materials companies have been in solid recession territory throughout the year. One of the most troubling indicators is the perceived deterioration in public infrastructure market conditions. The spreadComplete Story »

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In its 2014 Atlantic hurricane season outlook issued today, NOAA’s Climate Prediction Center is forecasting a near-normal or below-normal season.The main driver of this year’s outlook is the anticipateddevelopment of El Niño this summer. El Niño causes stronger wind shear, which reduces the number and intensity of tropical storms and hurricanes. El Niño can also strengthen the trade winds and increase the atmospheric stability across the tropical Atlantic, making it more difficult for cloud systems coming off of Africa to intensify into tropical storms.The outlook calls for a 50 percent chance of a below-normal season, a 40 percent chance of a near-normal season, and only a 10 percent chance of an above-normal season. For the six-month hurricane season, which begins June 1, NOAA predicts a 70 percent likelihood of 8 to 13 named storms (winds of 39 mph or higher), of which 3 to 6 could become hurricanes (winds of 74 mph or higher), including 1 to 2 major hurricanes (Category 3, 4 or 5; winds of 111 mph or higher).These numbers are near or below the seasonal averages of 12 named storms, six hurricanes and three major hurricanes, based on the average from 1981 to 2010. The Atlantic hurricane region includes the North Atlantic Ocean, Caribbean Sea and Gulf of Mexico.“Thanks to the environmental intelligence from NOAA’s network of earth observations, our scientists and meteorologists can provide life-saving products like our new storm surge threat map and our hurricane forecasts,” said Kathryn Sullivan, Ph.D., NOAA administrator. “And even though we expect El Niño to suppress the number of storms this season, it’s important to remember it takes only one land falling storm to cause a disaster.”Humberto was the first of only two Atlantic hurricanes in 2013. It reached peak intensity, with top winds of 90 mph, in the far eastern Atlantic.Gerry Bell, Ph.D., lead seasonal hurricane forecaster with NOAA’s Climate Prediction Center, said the Atlantic – which has seen above-normal seasons in 12 of the last 20 years – has been in an era of high activity for hurricanes since 1995. However, this high-activity pattern is expected to be offset in 2014 by the impacts of El Niño, and by cooler Atlantic Ocean temperatures than we’ve seen in recent years.

One of the most important decisions participants in the foreign exchange must make is whether to view the dramatic pullback in most of the major foreign currencies seen in the early days of the new year as a reversal of the trend or as simply an overdue correction. Our technical analysis sides with the latter and we anticipate renewed dollar weakness in the period ahead.

Morningstar submits: By Min Tang-Varner Engineering and construction (E&C) companies are generally considered late-cycle in that their performance lags the broader economy by several quarters. So far, profits have held up very well as they work through the project backlogs accumulated in past years, even as current order win rates remain rather anemic.

James Cordier submits:For anyone who hasn’t noticed yet, it’s July. Soon to be August. To Natural Gas traders, that means one thing: Hurricane Season. Here in Florida, the local media is already getting geared up for the annual gala.

BEIJING — Chinese leaders have ordered local officials to stop expanding industries such as steel and cement in which supply outstrips demand, a Cabinet statement said Tuesday, in a sign previous orders to cut overcapacity were ignored.
Beijing has been trying since 2009 to cut excess production capacity, which has triggered price-cutting wars that threaten the financial health of some industries. But lower-level leaders whose promotions depend on economic development have continued to support local industries.

OTTAWA — The federal government “could be doing more” to protect the environment, Natural Resources Minister Joe Oliver said Sunday.
Oliver was responding to last week’s report from the government’s environment watchdog — a report that highlighted numerous weaknesses and confusion in federal efforts to protect water and monitor activities such as fracking and offshore oil and gas exploration.

As I’ve mentioned before, although the auto industry seems to have stabilized in the wake of the financial crisis (and I see that as a good thing), overcapacity continues to be the major, long-term problem facing automakers (see Auto Industry’s Big Little Problem).

Matteo Radaelli submits: NAHB housing market index (Wednesday 20) – Notwithstanding the improvement over recent months, the real estate sector remains very weak. This was reflected in the NAHB housing market index, which fell from 17 to 16 in December. With the labor market failing to reverse the negative trend of the last two years and foreclosures expected to rise in the months to come, we do not expect a rebound in the real estate sector over the short term.